from the desk of Dr. Terry F Allen

Skip navigation

Member Login  |  Contact Us  |  Sign Up

802-877-8330

Free Options Strategy Report

Sign up for Dr. Terry F Allen’s free newsletter and get immediate access to his most current report on his stock option trading strategies.

Click Here to Sign Up Now

  • 1. All About Stock Options

    My goal is to give you a basic understanding of what stock options are all about without hopelessly confusing you with unnecessary details. I have read dozens of books on stock options, and even my eyes start glazing over shortly into most of them.

  • 2. Check Out Auto-Trade

    Auto-Trade is a service offered by several on-line brokers. Auto-Trade makes it possible for an investor to carry out an options strategy in his own account without becoming an options guru or making all the trades on his or her own.

  • 3. Never Buy a Mutual Fund

    Never buy a mutual fund unless it is a no-load index fund with the lowest cost structure. (I will tell you where to find it later.)

  • 4. Turbocharge Your IRA

    Most smart people have set up a Roth IRA, 401(k), or other qualified retirement program. For some of them, it may be the only stock market investment they own.

  • 5. Double Your Money the Lazy Way

    In spite of the odds against winning, many people seem to like to invest in individual stocks – sort of like picking horses at the race track.

  • 6. The 10K Strategy

    The 10K Strategy is my favorite investment strategy. I have used it to make an average of over 50% a year for three out of four consecutive years. I have now added a twist to the strategy so that annual returns might be less than those years but there should be a much higher likelihood of its succeeding.

  • 7. Trading ETF Options

    Exchange-Traded Funds, or ETFs, are index funds that trade just like stocks on major stock exchanges. All the major stock indexes have ETFs based on them, including: Dow Jones Industrial Average (DIA), Standard & Poor’s 500 Index (SPX), and Nasdaq 100 Composite (QQQQ).

  • 8. Other Stock Option Resources

    Learn about some of my favorite stock option resources.

Elevator Pitch Story of Terry’s Tips

Terry Allen started the Terry’s Tips in 2001 as an educational newsletter  where various options strategies were tested in real time with real dollars. As many as eight portfolios were simultaneously carried out, each one in a separate brokerage account and paying full commissions. Subscribers saw every trade in every portfolio, and could follow one or more of the strategies in their own accounts, either on their own or through an auto-trade service offered by several brokers where all the portfolio trades were duplicated in their own accounts.

Over the years, many of these strategies enjoyed consistent gains for long stretches of time, only to see them all disappear in one disastrous day or week.  One strategy, however, seemed to out-perform all the other strategies over the long run.  We had dubbed it the 10K Strategy (because it was neither a sprint or a marathon, but something in between).

For the past five years ending through 2021, the 10K Strategy has notched average annual gains of over 60% in our actual portfolios after paying all the commissions.

For the first five months of 2022, extreme volatility came along (something that this strategy does not like), and we lowered our risk by retaining about half our portfolios in cash.  The market was down badly (S&P 500 off over 18%, the Nasdaq down 22%) but the composite 10K Strategy portfolios gained over 10% over these five months. This works out to a 20%+ gain based our amount at risk.

The 10K Strategy is sort of like writing calls, but on steroids.  Instead of buying stock and selling calls against your shares, we buy longer-term options (both puts and calls) which decay at a much slower rate than the shorter-term (usually weekly) options that we sell.  Since these longer-term options cost a fraction of what the stock would cost, the potential return on investment is considerably higher with this options strategy.

The key to the strategy is the difference between the decay rates of the long and short options.  The major challenge is managing risk by selecting strike prices both above and below the stock price, and balancing the risk profile of the positions on a daily basis.

Unlike owning stock, longer-term options are deteriorating assets, just like the shorter-term options that we sell.  Maintaining a comfortable risk profile requires nimble trading and balancing the positions essentially every working day or week. 

In short, it takes a lot of work. For this reason, most Terry’s Tips subscribers choose to select one or more of our portfolios (most based on ETF underlyings such as SPY, IWM, QQQ) and sign up for an auto-trade service to have all these trades automatically be made in their accounts. 

A broker you have probably not heard of, Tradier, coupled with a Toronto-based broker called Global AutoTrade, performs this auto-trade service for a flat commission fee of only $10 per month for our subscribers, saving them hundreds if not thousands of commission dollars each year.

Who is Terry Allen? Terry earned his MBA at the Harvard Business School and eleven years later, completed all the requirements except the dissertation for a Doctorate in Business Administration at the University of Virginia. As part of his academic work, he created a statistical model which calculated the theoretical value of any option based on several measurable variables.  The options market was just getting established, and option prices were extremely inefficient (either too-high or too-low).   

At this point, he dropped out of school and got a seat on the Chicago Board of Options and traded as a market maker on the floor of the exchange. His model enabled him to make extraordinary gains for several months until two professors at the University of Chicago published a similar model (only one variable not in Terry’s model).  This model, called the Black-Scholes model, (later to earn these professors a Nobel Prize), gave every trader the same advantage that Terry had enjoyed, and his extraordinary earnings were whittled away.

He returned to Virginia to complete his Doctorate, but was hopelessly addicted to options trading which he has continued to do virtually every day the market has been open ever since.  Options trading has been quite profitable for him, and enabled him to give away millions of dollars to charitable causes in his home state of Vermont, including building a large outdoor swimming pool for the Burlington Boys and Girls Club and giving away hundreds of thousands of dollars in scholarship aid to first-in-family college students at Champlain College where he served as a trustee for eleven years.

For nearly two decades, Terry has carried out personally or managed the portfolio trades of the Terry’s Tips portfolios.  In 2019, he brought in another (younger) experienced trader to manage these portfolios using the 10K Strategy, and the recent successful results are largely due to the efforts of his associate who totally understands the trading rules developed over the years at Terry’s Tips.

How to carry out the 10K Strategy: We have published a White Paper which spells out the precise Trading Rules for carrying out the 10K Strategy.  This White Paper is delivered to each new Terry’s Tips subscriber at the outset of his or her subscription.  Many subscribers sign up for a single month and learn all these Trading Rules, and watch the portfolios evolve each week for a month.  Then they cancel and carry it out on their own using an underlying that they like (any stock or ETF which trades options can be used as an underlying security).  That is fine with us.

Other subscribers realize the volume of effort involved in carrying out this strategy, and they continue on with us (often for many years) using an auto-trade service provided by some brokers, including Tradier.  This is even finer with us.

TERRY’S TIPS STOCK OPTIONS TRADING BLOG

August 8, 2022

Storage-device maker Western Digital (WDC) reported earnings on Friday that topped estimates on both the top and bottom lines. However, both measures fell short of the year-ago figures. More importantly, the company issued dismal guidance, blaming softer consumer spending and inventory corrections. Q1 revenue is now expected in the $3.6-3.8 billion range, far below the $4.74 billion consensus estimate. Earnings per share looks even worse, with an expected range of $0.35-0.65 compared to the $1.96 consensus.

Oddly, there were no target price changes for the stock on Friday. However, given that analysts are strongly bullish toward WDC and have a median target price of $65 (38% above Friday’s close), the weak guidance is sure to bring some price cuts, if not outright downgrades.

The stock reacted appropriately after the news, falling nearly 10% before closing 5% lower. This put an abrupt halt to WDC’s monthlong rally that saw the stock gain 20%. The 50-day moving average also marked a top to the uptrend. Friday’s fall also pulled the shares below their 20-day moving average, a trendline that has guided the past three weeks of the rally. Note that the short call strike of our credit spread sits on the 50-day, which will move below the 50 level this week. Thus, the stock will have to pierce both the 50-day (blue line) and 20-day (red line) moving averages to move the spread into the money.

If you agree that WDC’s rally is over, consider the following trade that relies on the stock staying below $50 (green line) through expiration in six weeks:

Buy to Open the WDC 16Sep 52.5 call (WDC220916C52.5)
Sell to Open the WDC 16Sep 50 call (WDC220916C50) for a credit of $0.60 (selling a vertical)

This credit is $0.04 less than the mid-point price of the spread at Friday’s $47.09 close. Unless WDC drops quickly, you should be able to get close to that price.

The commission on this trade should be no more than $1.30 per spread. Each spread would then yield $58.70. This trade reduces your buying power by $250, making your net investment $191.30 per spread ($250 – $58.70). If WDC closes below $50 on September 16, both options will expire worthless and your return on the spread would be 31% ($58.70/$191.30). 

August 3, 2022

Zurich-based Chubb Limited (CB) is the world’s largest publicly traded property and casualty insurance company. CB reported earnings this week that topped estimates. But the market wasn’t sure how to react, as analysts offered a mix of target price increases and decreases.  What’s clear, however, is that analysts are overwhelmingly bullish toward CB, as 84% give the stock a buy or better rating. Perhaps this is due to the “conventional” wisdom that insurance companies benefit from rising interest rates.

But analysts would be well advised to check out CB’s chart. Despite the solid earnings numbers, the stock ended the week flat. Moreover, it failed to break out of a four-month downtrend that has seen the stock drop 14%. This slide has been guided by the 20-day moving average (blue line in chart), which hasn’t allowed a daily close above it since early June. Above that lies the 50-day moving average (red line), which has yet to be tested. It sits at the $196 level, just a point above the short strike of our call credit spread. At its current slope, it will fall below this strike in the coming week. Thus, the stock will have to pierce two points of resistance to move into the money.

If you agree that the 20-day moving average will continue guiding CB lower, consider the following trade that relies on the stock staying below $195 (green line) through expiration in seven weeks:

Buy to Open the CB 16Sep 200 call (CB220916C200)
Sell to Open the CB 16Sep 195 call (CB220916C195) for a credit of $1.40 (selling a vertical)

This credit is $0.02 less than the mid-point price of the spread at Friday’s $188.64 close. Unless CB drops quickly, you should be able to get close to that price.

The commission on this trade should be no more than $1.30 per spread. Each spread would then yield $138.70. This trade reduces your buying power by $500, making your net investment $361.30 per spread ($500 – $138.70). If CB closes below $195 on September 16, both options will expire worthless and your return on the spread would be 38% ($138.70/$361.30).  

July 26, 2022

28 July 2022

Go With the Pro

Prologis (PLD) is a real estate logistics company, leasing properties to businesses in 19 countries. The company reported earnings on Monday before the open that beat profit and revenue estimates. PLD also raised guidance for FY22. There were no upgrades or downgrades on the news, but a few target prices were lowered. This is normal these days as analysts are lowering targets across the board to keep up with the bear market. Despite a few reductions, the overall target is $161, 27% above Friday’s close.

The stock reacted with a 1.5% drop on Monday after reporting but recovered to close the week with a 4% gain. More importantly, the shares bounced off the support of the 20-day moving average, a trendline that is now pointing higher for the first time since April. That was just as PLD was embarking on a 40% slide that took less than two months. But the stock has gained 19% off its June 13 bottom to close at its highest point in more than five weeks.

This trade is based on PLD continuing its recent uptrend, buoyed by the support of its rising 20-day moving average. Note that the short strike of our put spread is below the 20-day, meaning the stock will have to pierce this support to move the spread into the money.

If you agree that the 20-day moving average (blue line) will continue guiding PLD higher, consider the following trade that relies on the stock staying above $120 (red line) through expiration in eight weeks:

Buy to Open the PLD 16Sep 115 put (PLD220916P115)
Sell to Open the PLD 16Sep 120 put (PLD220916P120) for a credit of $1.10 (selling a vertical)

This credit is $0.05 less than the mid-point price of the spread at Friday’s $126.90 close. Unless PLD increases quickly, you should be able to get close to that price.

The commission on this trade should be no more than $1.30 per spread. Each spread would then yield $108.70. This trade reduces your buying power by $500, making your net investment $391.30 per spread ($500 – $108.70). If PLD closes above $120 on September 16, both options will expire worthless and your return on the spread would be 28% ($108.70/$391.30). 

Any questions?  Email Terry@terrystips.com

Upcoming Market Dates:

Monday September 5th. Market closed for Labor Day
Monday October 10th. Market closed for Columbus Day

Making 36%

Making 36% – A Duffer's Guide to Breaking Par in the Market Every Year in Good Years and Bad

This book may not improve your golf game, but it might change your financial situation so that you will have more time for the greens and fairways (and sometimes the woods).

Learn why Dr. Allen believes that the 10K Strategy is less risky than owning stocks or mutual funds, and why it is especially appropriate for your IRA.

Order Now

    Sign Up Your 2 Free Reports & Our Newsletter Now!

    Sign up for Dr. Terry F Allen’s free newsletter and get immediate access to his most current report on his stock option trading strategies.

    tastyworks

    tastyworks, Inc. (“tastyworks”) has entered into a Marketing Agreement with Terry’s Tips (“Marketing Agent”) whereby tastyworks pays compensation to Marketing Agent to recommend tastyworks’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastyworks and/or any of its affiliated companies. Neither tastyworks nor any of its affiliated companies is responsible for the privacy practices of Marketing Agent, its website or this email. tastyworks does not warrant the accuracy or content of the products or services offered by Marketing Agent or its website.

    Member Login  |   Programs and Pricing  |  Testimonials  |  About Us  |  Terms and Conditions  |  Accessibility Statement  |  Privacy Policy  |  Site Map

    Options are not suitable for all investors as the special risks inherent to options trading my expose investors to potentially rapid and substantial losses. Please read Characteristics and Risks of Standardized Options before investing in options

    © Copyright 2001-2022 Terry's Tips, Inc. dba Terry's Tips
    235 Primrose Lane, Ferrisburgh, VT 05456